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Update on USDJPY: May 17, 2017

As DXY closes in on our next downside target, it seems like a good time to check in on USDJPY. In our last major update [see: April 3 Update on USDJPY] I tried to reconcile two slightly incompatible targets: the .618 Fib at 107.86 and the SMA200 (then) at 108.41.

There was a third potential attraction: a channel midline about halfway between them at 108.08. And, there was another complicating factor: the falling channel USDJPY had been in since December didn’t reach any of those targets until later in the month, when their divergence would be even greater.

Sometimes, in charting, you have to squint your eyes and plop a target down where it comes closest to satisfying multiple, divergent objectives. That’s what I did.

Either way, I expect it continue selling off to at least 108-109 with an eventual goal of the channel bottom around 105.33 – 105.60.

It turned out to be a nice call. USDJPY reached 108.11 on Apr 17, meaning it tagged both the SMA200 and the white channel midline before reversing. It spent two more sessions trying to regain the SMA200, finally doing so on Apr 20 and, then, breaking out on Apr 24. I put an upside target of 113.50 on it, which it reached on May 9.

But, a funny thing happened at 113.50 — or, rather, didn’t happen. USDJPY kept going, breaking out of the falling white channel and reaching 114.36 before it finally ran out of steam.

That was interesting; but, what was even more interesting is that the break out didn’t hold. On May 11, with USDJPY at 113.808, we noted that it had started to break down. It bounced sideways for a few days, then plunged over 2% today.With DXY having reached our next downside target, is USDJPY done? Or, does it have further to drop?